Tier 3 standard deduction not calculating properly for michigan for non resident. Has anyone else had this problem and how do I correct?

[coopboy86]

turbo tax is not prorating a michigan standard deduction (for someone 67 years old) for a non resident (have prorated income between 2 states)

[AmyC]

Follow these steps:

Note: Be sure your federal is completely done before doing MI.

1. Open to MI interview
2. Look for the Income Allocation and verify MI income is correct
3. Look at Sch NR, line 19 - this should be the correct percentage
4. The program will use that percentage.
5. In MI, you are asked if you want standard deduction or Pension/ Retirement subtraction. The standard deduction will default sometimes to the full amount of the deduction on Sch 1, line24 without prorating your Sch NR percentage.
6. On the MI Retirement and Pension Benefits schedule - be sure you didn't accidentally elect to take a different retirement deduction to block the tier 3 standard deduction.

One more possible issue:

For tier 3, your standard deduction is reduced by any taxable Social Security or Military Retirement benefits you receive. You may have used up your deduction with those items.

[coopboy86]

Thank you for your reply. Still having an issue. I am a non resident of Michigan.

1.  Michigan Sch NR line 19 is correct. (5.26% of my income is allocated to Michigan through business income -  Board of Director's position in the state of Michigan)

2. I go to "Topic List" in turbo tax and see a box for Michigan interview.  This box is filled in with smaller blue square (not sure if the interview will open as It seems to open in "Start Your State Return)?  This might be appropriate.

3. The standard deduction section on schedule 1 - Deduction Based on Year of Birth.  I am 67 years old and believe I qualify for Tier 3 Michigan Standard Deduction. Worksheet 2: Tier 2 and 3 Michigan Standard Deduction Smart Worksheet fills in $40,000 on line 1, line 3 and line 7.  Line 9 and 10 is properly prorated (5.26%) for personal exemptions

4. Line 11 shows $39,507.  Per the tax form instruction from line 11, this amount of $39,507 should carry down to line 26.  Line 26 is blank in turbotax?

5. My federal return does have pension income from a private employer.  But none is allocated to the State of Michigan.  Pension deduction worksheet appears to show information correctly.

6.  I have no taxable Social Security or Military Retirement benefits.

In summary:

1. "I believe" I qualify for a Tier 3 Standard Deduction (for all/any income deduction) which should be reduced down to 5.26% as I don't think I would qualify for a 100% standard section based on income proration?  

2. I can't get back to the question in turbo tax about "In MI, you are asked if you want standard deduction or Pension/ Retirement subtraction."  I was initially asked this question during the turbo tax "Smart Check" and the question was asked to correct an error (I don't see this question on any Michigan form through turbo tax).  So may have something blocking a calculation?

[AmyC]

1 Yes, you can take a tier 3 deduction prorated. Mi has an either/or system. Here are the MI retirement instructions for your age.

2. You do need to get back to that question and make sure standard deduction is selected for your pension since you can't claim pension and tier 3. Possible options:

• If you can delete MI and start again, that would alleviate the issue.
• Otherwise, stepping through the state again.
• Finally, you may need to remove the 1099-R in federal go through the MI state section. Close return and log out. Then add it back in federal and try MI with a fresh start.

[coopboy86]

The Michigan Tier 3 Standard Deduction defaults to $40,000 (married filling jointly) and is not being reduced for prorated income earned in that state.  In summary:

1. I have tried Deleting the Michigan Return and started over

2. Take Standard Deduction is selected in software

3. I have no pension and retirement income allocated to state of michigan (although I have pension and retirement income in AZ).  The pension worksheet properly shows the federal pension and retirement income with none allocated to MI.

4. The software will not let me override the $40,000 field for the default standard deduction (as I believe it should be prorated based on schedule NR line 18 percentage

How can I fix?

[AmyC]

The Schedule NR  holds the answer.  You said line 19 had the correct percentage. The $40k should not be prorated on that line. As a MI NR your tax is allocated but the income is calculated as a full year resident.

MI is among the majority of states that tax a nonresident or part-year resident using apportionment/ allocating the tax. The full income from everywhere is reported.

1. MI will look at your total family income for the year and determine the tax on that amount. 
2. Then, they look at what percentage of the income was actually from MI.
3. MI multiplies the percentage of NY income times the MI tax.

For example:

• MI tax on your federal income is $8,000
• But only 10% of your income was earned in MI
• MI tax liability will be 10% of $8,000 or $800.